Sensex ends lower as RBI rate cut turns non-event

MUMBAI: The stock market ended another volatility marred day in the red Tuesday as global markets looked weak after concerns on credit crisis resurfaced. Interest rate sensitives like banks and auto closed lower while realty stocks gained after the Reserve Bank of India cut its key policy rates.

Markets began trade on a weak note after global markets were rattled by concerns raised by Bank of America on troubled loans. Traders eyeing the RBI's annual credit policy bought frontline stocks on declines and positive opening of European markets lended support to sagging market pulling it back in the green.

However, the pull-back was short-lived as indices could not sustain above psychological resistance levels for too long and gave in to profit booking.

The RBI cut its reverse repo and repo rates by 25 basis points while it kept the cash reserve ratio unchanged. The latest cut will take the repo rate to 4.75% and reverse repo rate to 3.25%. With these cuts, the RBI has delivered 425 bps in cuts to the repo rate and 275 bps to the reverse repo rate since the rate-cutting cycle began. However, the market was not amused by the surprise rate cut.

"The 25bps cut by the RBI is a clear signal to the banks to bring down their lending rates. We do not expect any major impact on the market solely because of the interest rate cuts by the RBI. As far as banks and realty sectors are concerned, we believe this will have marginal impact in the immediate term," said, Dipen Shah, vice president, PCG – Research, Kotak Securities.

Bombay Stock Exchange's Sensex closed at 10,898.11, down 81.39 points or 0.74 per cent. The index touched a high of 11068.82 and low of 10764.08. National Stock Exchange's Nifty ended at 3365.30, down 11.80 points or 0.35 per cent. The broader index touched a high of 3414.70 and low of 3309.35.

The BSE Midcap Index was down 0.16 per cent and BSE Smallcap Index moved up 0.42 per cent. Amongst the sectoral indices, BSE Realty Index was up 2.27 per cent, BSE Bankex was down 2.86 per cent and BSE Auto Index slipped 2.52 per cent.

"It is more of a sentimental impact on the indices. The upward momentum is likely to continue till the settlement. Fundamentally we do not expect the real estate sector to do well for the next 3-4 months. The scrips may move up with the market but they will be the first to fall in a correction. We are suggesting investors to buy banks on declines," said Ambareesh Baliga, vice-president and research head, Karvy Stock Broking.

According to Goldman Sachs, the rate cutting trend will soon come to an end. "The smaller magnitude of the rate cut by the RBI, excess liquidity in the system, a substantial easing of financial conditions, and a dramatic decline in corporate bond spreads suggest to us that growth will recover in the second half of FY10, and that the rate-cutting cycle is nearing its end. The real concern is not at the short end, but at the long end of the rate curve. Although this move by the RBI will provide some temporary relief, we think that structurally, long bond yields will push higher given the large government borrowing requirement. The RBI, in our view, will continue to purse limited quantitative easing to try to prevent yields from ratcheting up sharply. We continue to expect the RBI to cut the cash reserve ratio of banks by 150 bps," said Tushar Poddar, Vice President - Asia Economics Research at Goldman Sachs.

Market breadth was flat on the BSE with 1,226 advances and 1,288 declines.

European markets had slipped in the negative terrain on concerns of banks suffering losses due on-going financial crisis. FTSE 100 was down 0.71 per cent, CAC 40 fell 0.66 per cent and DAX slipped 0.42 per cent. Wall Street is headed for another weak opening. Dow Jones futures was down 0.70 per cent, S&P futures was down 0.76 per cent and Nasdaq futures fell 0.55 per cent.

Results Update:

Two-wheeler major Hero Honda Motors has announced 35 per cent jump in net profit for quarter ended March. Its net profit rose to Rs 402.17 crore from Rs 298.70 crore in the same period a year ago. Net sales grew to Rs 3411.84 crore in the fourth quarter from Rs 2788.65 crore a year ago. The company has recommended a dividend of 1000 per cent i.e. Rs 20 per equity share of Rs 2 each for the financial year 2008-09. The scrip ended 2.16 per cent lower at Rs 1100.95 on the NSE.

Rolta India's consolidated net profit grew to Rs 133.14 crore in the third quarter ended March 31, over the corresponding period a year ago. The consolidated total income of the company rose to Rs 340.14 crore in the third quarter of FY'09 from Rs 298.89 crore in the same quarter last fiscal.